on the macroeconomic implications of budget policy is forward-looking and encourages identifying at an
early stage the fiscal impact of new spending and taxation measures, as well as the putative limits on
fiscal policy action in the medium-term.
Budget management
German budget management is to be based on a financial plan covering a five-year period, the current
fiscal year, the draft budget for the next fiscal year, and forecasts for the following three years. The five-
year medium-term plan rolls forward with each fiscal year—every time a new draft budget is prepared,
the following three years’ forecasts are updated.
The Medium-Term Financial Planning process in Germany offers:
- an explicit recognition of the macroeconomic implications of overall fiscal stance (and thus a
reminder of the idea of medium-term constraints on budgets); - coordination between Federal- and State-level financial officials, particularly on expenditure,
taking the overall situation and mandates into account; - enhanced transparency in the budget process, both by giving experts from civil society a voice in
formulating tax revenue estimates and by annually announcing five-year projection for major
fiscal categories.
Drawing up the budget
The Federal Ministry of Finance is responsible for drawing up the federal budget and the Federation's
financial plan. The main objective when preparing the budget is to implement the political targets of the
Federation's budgetary and financial policy, thus reflecting the federal government's political priorities.
The preparation of the budget begins decentrally when the individual ministries present and justify their
financial needs. Deciding which overall government tasks – and therefore which expenditures – are
necessary is not only a purely financial or economic question; it is also a political value judgment. In
order to make sure that the right priorities are set, it is crucial that, when the budget is drawn up, there is
keen competition between all requests for expenditure for the scarce funds. All requests are at the
Minister of Finance's disposition when under examination and have to win through in competition with
other ideas. According to Ministry of Finance's rules on the preparation of the budget, new initiatives and
programmes must, on principle, be financed by restructuring within the respective ministerial budget. In
cases when individual ministries have sufficient control over their expenditure, their individual budgets
are largely negotiated as upper limits.
The process of drawing up the budget and medium-term financial planning involves laying down for
each individual title not only the framework for the next financial year, but also a rough draft for the
coming three years. All expenditure titles (approx. 5200) and all revenue titles (approx. l000) are
subjected to meticulous scrutiny. This also forces everyone concerned to consider the consequences of
every measure. On addition to planable expenditures, therefore, financial planning also includes
provisions for risks that could occur in the medium-term planning period. The cycles of financial
planning are the same as the procedure for drawing up the budget.
The basis of planning here is the federal government's macroeconomic medium-term projection, which is
drawn up in April of each year. The basis for predicting revenue development is provided in May of each
year by the estimate of the "Revenue Forecasting" working group, a body that also includes
independent financial and economic experts.
Parliament focuses intensely on the budget after the government's bill is tabled. Along with the
legislature the plan is also released to the public, although expenditure figures are not broken down in
full detail.